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October 7, 2013

15 Key Health Care Act Provisions That Begin in 2014

The PPACA was signed in 2010, but 2014 is the year when most core pieces might start to effect many of your clients' health care planning

The effective date of the Patient Protection and Affordable Care Act (PPACA)is March 23, 2010, although various provisions have their own effective dates from Jan. 1, 2010 (the small business income tax credit), through 2018. The start of 2013 saw the launch of a number of key provisions, among them Medicare tax increases, limits on Health FSA deferrals and the requirement that W-2 reporting note employer and employee payments for certain health care items in 2012.

But 2014 is the year when most core pieces of PPACA will be put into effect, like individuals must obtain minimum essential health coverage for themselves and their dependents, whether or not they have access to coverage through their employer. The mandate that employers with 50+ employees must provide health insurance was delayed till 2015.

Equally momentous, beginning Jan. 1, 2014, states are required to have opened a state-run health insurance exchange, or to have partnered with the federal government to open an exchange. Oct. 1 saw the rocky opening of enrollment into the exchanges. In theory, within these exchanges, insurance companies will compete for business on a transparent, level playing field, which should reduce costs and give individuals and small businesses the purchasing power enjoyed by big businesses.

However, health reform does many things to increase costs by covering those who are now uninsurable and by increasing mandated benefits. Many predict these factors will far outweigh any efficiencies created by the exchanges and that health insurance prices will increase. If exchanges succeed, they will create the first viable alternative to the group markets for the under-65 population.

In short, there's a lot to track over these next six months. Read on for 15 provisions that will become effective on Jan. 1, 2014.

1. Health Insurance Nondiscrimination Requirements

Code Section 105(h) currently taxes the benefits received by highly compensated employees (HCEs) under discriminatory self-funded health plans. PPACA has extended these nondiscrimination rules to insured plans. It is unclear whether this change imposes tax penalties or is a substantive requirement. Employers with discriminatory insured arrangements, however, will need to consider changing them. Grandfathered plans are exempt from this rule.

This new requirement was originally intended to be effective for plan years beginning on or after September 23, 2010. The effective date was postponed in 2010 until IRS publishes a notice, which has not yet been issued. The provision may not be effective in 2014 but it likely will be.

2. State Health Insurance Exchanges

Each state must establish a health insurance exchange (or HHS will do so) for use by the uninsured and small employers with 100 or fewer employees (although states may set the cap at 50 employees). The exchanges will offer fully insured insurance contracts that provide essential health benefits at different levels of coverage (bronze, silver, gold, and platinum). Employees of small employers who offer health insurance coverage through an exchange may pay their employee premiums for such coverage on a pre-tax basis through the employer’s cafeteria plan.

3. State Health Insurance Exchange Tax Subsidies

Individuals who do not have affordable minimum essential coverage from their employer will be eligible for tax credit subsidies for their health insurance purchase on a state exchange if their income is below 400% of the federal poverty level.

If an employer provides minimum essential health coverage to its FTEs, but fails to pay at least 60% of its actuarial value or the coverage is considered unaffordable (costs more than 9.5% of household income), then the employer must pay a penalty of up to $3,000 per year for each FTE who receives the premium credit on an exchange, but not more than would be owed for the $2,000 per year penalty. An FTE is defined as an employee who is employed for 30 or more hours per week, calculated on a forty-hour work week. This provision also applies to grandfathered plans.

5. Individual Mandate Tax Penalty

Individuals are required to obtain minimum essential health coverage for themselves and their dependents or pay a monthly penalty tax for each month without coverage. The monthly penalty tax is one-twelfth of the greater of the dollar penalty or gross income penalty amounts. The dollar penalty is an amount per individual of:

$95 for 2014 (capped at $285 per family),

$325 for 2015 (capped at $975 per family), and

$695 for 2016 (capped at $2085 per family).

These dollar penalties will be indexed for inflation starting in 2017.

The gross income penalty is a percentage of household income in excess of a specified filing threshold of:

1% for 2014,

2% for 2015, and

2.5% for 2016 and later years.

In no event will the maximum penalty amount exceed the national average premium for bronze-level exchange plans for families of the same size.

Employers with more than 200 employees who maintain one or more health plans must automatically enroll new full-time employees in a health plan. The employer must give affected employees notice of this automatic enrollment procedure and an opportunity to opt out. State wage withholding laws are pre-empted to the extent that they prevent an employer from instituting this automatic enrollment program. The final effective date was [will be?] established by DOL regulations.

7. Pre-Existing Condition Exclusion Practices Eliminated

Pre-existing condition exclusions no longer will be allowed in group health plans or individual insurance policies, not even the limited exclusions previously allowed under HIPAA. This also applies to grandfathered plans.

8. 90-Day Maximum Waiting Period

Group health plans and health insurance issuers may not impose waiting periods of more than ninety days before coverage becomes effective. This also applies to grandfathered plans.

9. Cost-Sharing Limits

Group health plans, including grandfathered plans, may not impose cost-sharing amounts (i.e., copays or deductibles) that are more than the maximum allowed for high-deductible health plans (currently these limits are $5,000 for an individual and $10,000 for a family coverage). After 2014, these amounts will be adjusted for health insurance premium inflation.

10. Annual or Lifetime Limits

Group health plans, including grandfathered plans, may no longer include more than restricted annual or any lifetime dollar limits on essential health benefits for participants. Limits may exist in and after 2014 for non-essential benefits.

11. Wellness Program Health Plan Discount

The maximum premium discount an employer can offer under its health plan for participation in a wellness program is 30%. This is an increase from the prior 20% maximum premium discount. Regulatory agencies can increase this maximum discount to 50% in the future.

12. Coverage for Those in Clinical Trials

Insurers and health plans, unless grandfathered, may not discriminate against an individual for participating in a clinical trial. If a plan covers a qualified individual, it may not deny or impose additional conditions for participation in a clinical trial.

13. Employer Minimum Essential Coverage Reporting

All employers providing minimum essential coverage must file information with the IRS and plan participants.

14. Large Employer Health Information Reporting

Large employers and employers with at least 50 full-time equivalent employees must submit annual health insurance coverage returns to the FTEs and the IRS. The returns must certify whether the employer offers health care insurance to its employees and, if so, describe the details regarding plan participation, applicable waiting periods, coverage availability, the lowest cost premium option under the plan in each enrollment category, and other information.

15. Medicaid Expansion

The U.S. Supreme Court in effect ruled that the requirement for states to offer Medicaid benefits to all persons with incomes at or below 133 percent of the federal poverty level is optional with each state. States that participate in the expansion will receive full reimbursement of their additional Medicaid costs from the federal government until 2017. At that time, reimbursement will gradually decline to 90 percent of extra costs in 2020 and thereafter.